Goods and Services Tax (GST) is a

value-added tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...

consumption tax A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumpti ...

for

goods and services Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...

consumed in

New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island coun ...

. GST in New Zealand is designed to be a broad-based system with few exemptions, such as for rents collected on residential rental properties, donations, precious metals and financial services. Because it is broad-based, it collects 31.4% of total taxation, making New Zealand the highest taxed country in the

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...

in terms of sales tax as a proportion of

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...

. The rate for GST effective since 1 October 2010 is 15%. This 15% tax is applied to the final price of the product or service being purchased and goods and services are advertised as GST inclusive. Reduced rate GST (9%) applies to hotel accommodation on long term basis (longer than 4 weeks). Zero rate GST (0%) applies to exports and related services; financial services; land transactions; international transportation. Financial services, real estate, precious metals are exempt (0%)

Background

GST was introduced by the

Fourth Labour Government of New Zealand The Fourth Labour Government of New Zealand governed New Zealand from 26 July 1984 to 2 November 1990. It was the first Labour government to win a second consecutive term since the First Labour Government of 1935 to 1949. The policy agenda o ...

on 1 October 1986 at a rate of 10% on most goods and services. It replaced existing sales taxes for some goods and services. GST was a part of the economic reforms initiated by Labour Finance Minister

Roger Douglas Sir Roger Owen Douglas (born 5 December 1937) is a retired New Zealand politician who served as a minister in two Labour governments. He became arguably best known for his prominent role in New Zealand's radical economic restructuring in the 19 ...

dubbed

Rogernomics In February 1985, journalists at the '' New Zealand Listener'' coined the term Rogernomics, a portmanteau of "Roger" and "economics" (by analogy with " Reaganomics"), to describe the neoliberal economic policies followed by Roger Douglas. Dou ...

. GST was introduced in conjunction with compensating changes to personal income tax rates and removal of many excise taxes on imported goods. Since its introduction it has had two increases, on 1 July 1989 the rate increased to 12.5% and on 1 October 2010 it increased again to 15%.

How it works

GST-registered organisations and individuals pay GST only on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every two months, with some qualifying companies opting for one-month or six-month periods), then either paying the difference to the Inland Revenue (IRD) if the GST collected on sales is higher or receiving a refund from IRD if the GST paid on purchases is higher. Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products: effectively, they charge GST at 0%. This permits the business to claim back the input GST, but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST). Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

issues. Consequently,

wholesaler Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...

s often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.

Digital services supplied by offshore companies

On 1 October 2016, the taxation of digital ('remote') services supplied by offshore companies (non-New Zealand) to consumers based in New Zealand changed. Since that date, a GST of 15% (dubbed the 'Netflix Tax') is applied to all supplies from offshore digital service suppliers to New Zealand-based consumers. It is the supplier's responsibility to apply, collect and remit th
new GST
to New Zealand's Inland Revenue Department. That new piece of GST legislation mirrors similar rules governing the supply of digital services introduced in the European Union (EU) in January 2015 on the

taxation of digital goods Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes ref ...

. The general taxation of digital goods and services has become more common internationally since the

released its long-awaited

BEPS Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic a ...

report in October 2015. Action 1 of the report deals with the taxation of the

digital economy The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional brick-and-mortar economic activities (production, distribution, trade) are being transformed by Internet, World Wide Web ...

. The report provided guidelines and recommendations for such taxes be they in the form of

, GST, equalisation levy, or

withholding tax Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the incom ...

. Friday, 19 October 2018 New Zealand is the latest jurisdiction to include such rules in legislation following in the path of Norway, the EU, South Africa, South Korea, and Japan. In July 2017, the Australian government also plans to introduce similar rules.

References

{{reflist

External links

Inland Revenue GST siteNew Zealand Goods and Services Tax
calculator
Treasury Taxation Overview
Taxation in New Zealand

1986 establishments in New Zealand

Background

How it works

Digital services supplied by offshore companies

See also

References

External links